How Much Can I Borrow? Mortgage Affordability Explained

Lenders commonly quote a maximum income multiple as a headline figure — often somewhere around four to five times annual income, though this varies between lenders and can depend on factors such as loan-to-value and total income level. This multiple sets an upper ceiling, but it is rarely the actual amount offered once a full affordability assessment is applied.

It is worth treating any income multiple you see quoted as an illustration rather than a promise. The real answer comes from a full affordability assessment carried out by the lender, which takes into account far more than salary alone.

• Gross and net income, including basic salary and any additional income
• Regular committed outgoings such as childcare, travel and existing loan repayments
• Credit card balances and other revolving credit, even if not fully used
• Number of financial dependants
• Council tax, utility estimates and other typical household costs
• The interest rate stress test applied by the lender

Because every lender weighs these factors slightly differently, the same applicant can receive noticeably different maximum offers from different lenders. This is one of the main reasons a whole-of-market comparison is useful rather than relying on a single lender's online calculator.

Regulatory guidance requires lenders to check that a borrower could still afford repayments if interest rates were higher than the actual rate on the mortgage. This stress test is designed to reduce the risk that borrowers take on a mortgage that becomes unaffordable if rates increase. It means the amount you can borrow is not simply your income multiplied by a set number, but is also constrained by what you could afford under a higher, hypothetical rate.

Regular spending on things like subscriptions, childcare and travel, along with existing credit commitments, directly reduces what a lender considers available to cover mortgage repayments. A credit card with a large available limit — even if mostly unused — can also be factored in, because the lender must consider what would happen if it were drawn down.

Reviewing bank statements from the past three to six months before applying gives a realistic sense of your actual spending, which is broadly what a lender will see and assess.

Self-employed applicants are typically asked for two or three years of accounts or tax returns, and lenders' approaches to averaging income, using the most recent year, or applying a discount to fluctuating income vary considerably. Similarly, bonuses, overtime and commission are treated differently by different lenders — some accept a percentage of this income, others require a track record over a set period.

If your income doesn't fit a straightforward employed, single-salary pattern, getting advice early is particularly useful, since criteria in this area differ significantly between lenders.

An agreement in principle from a lender, based on your actual income and outgoings, gives a far more reliable figure than a generic online calculator. Because criteria and stress tests vary between lenders, checking with more than one — or asking a whole-of-market advisor to do this on your behalf — can reveal a meaningfully different maximum than a single lender's quick estimate.